The Serious Fraud Office is to investigate Tesco over the accounting irregularities that created a £263m shortfall in the company’s profits.

The SFO has notified Tesco that it will launch a formal criminal investigation into accounting practices at the company.

The intervention by the SFO heightens the crisis facing Britain’s biggest retailer, which attempted to draw a line under the accounting scandal when it presented interim results last week. It means that the company and individuals could face criminal charges.

As a result of the SFO’s intervention, the Financial Conduct Authority will halt its own investigation into Tesco.

In a stock market statement, Tesco said: “Tesco confirms that it has been notified by the Serious Fraud Office that it has commenced an investigation into accounting practices at the company.

“Tesco has been cooperating fully with the SFO and will continue to do so. Tesco has been notified by the Financial Conduct Authority that, in light of the SFO investigation, its investigation will be discontinued.”

Tesco hired accounting firm Deloitte to conduct its investigation into the scandal and these findings have been handed to regulators.

The retailer has declined to comment on the conclusions of the report, however a source close to the probe said it had found evidence there was “inappropriate behaviour” and had been a “deliberate intention” to mislead auditors.

It is understood Tesco booked supplier contributions that were conditional on hitting sales targets that it was not going to reach. The source claimed that a “small group” of employees, realising these sales targets would not be hit, struck deals with suppliers to still make these payments by offering benefits in the next financial period. These benefits were then kept secret.

The SFO also confirmed it had launched a formal investigation. It said: “The SFO confirmed today that the director has opened a criminal investigation into accounting practices at Tesco plc.”

Tesco has suspended eight executives, including UK boss Chris Bush, while an investigation into the scandal takes place. It is also withholding payments worth £2m to Philip Clarke and Laurie McIlwee, its former chief executive and chief financial officer.

Some of the world’s biggest consumer goods groups have flown in audit teams to run the rule over their UK operations following the accounting scandal at Tesco.

It is understood that companies including Unilever, Proctor & Gamble and Coca-Cola are checking their UK businesses on the back of Tesco uncovering the shortfall.